What Google’s Stock Split Means for You

BySteven Russolillo

No, the halving of Google Inc.’s stock price Thursday and a new ticker symbol aren’t mistakes on your screens.

Google’s long-awaited two-for-one stock split, announced nearly two years ago, has finally arrived, a development that will help cement founders Larry Page‘s and Sergey Brin’s control over the Internet search giant.

In a stock split, a company increases the number of shares outstanding while lowering the price accordingly. In this instance, Google’s “Class “A” shares now trade under the GOOGL ticker symbol, while the newly created “Class C” shares trade under the GOOG symbol.

“By holding super-voting Class B shares, Page and Brin controlled 56% of Google as of last April’s proxy filing. The founders have seen their grip erode over the years as Google continued to issue Class A shares to finance acquisitions and pay employees with stock. Each Class A share carries one vote, while each Class B share carries 10 votes.

“To solve the problem, Google created ”Class C” shares that are being issued at the beginning of April to shareholders of record March 27. These have no voting rights and, going forward, are the shares Google intends to issue for compensation and acquisitions. That will end the slow-motion dilution for Class B shareholders.”

Google’s Class A shares recently rose 1% to $572.75 following the split.

“Say you hold 100 Class A shares today. At one vote per share, that entitles you to 100 votes. After the stock split next week, you will hold 100 Class A and 100 Class C shares. Class A shares keep their one vote, while Class C shares have none. So while your number of shares doubles to 200, you still have 100 votes. The same thing is happening for those holding super-voting Class B shares. And since it is much less likely Class A shares will be issued in the future, Brin and Page effectively put a floor under their voting control.

“One more question. Will the stock split affect the bottom line? No. Per-share earnings, as usual, will be cut in half to reflect the doubling of outstanding shares, but investors’ overall share of profits don’t change. (Twice as many shares multiplied by half the per-share earnings equals the same proportional share of profits.)”

The move comes as stock splits have largely gone by the wayside in recent years. Only 11 companies in the S&P 500 “split” their shares in 2013, the fourth-lowest number on record and down from an average of nearly 65 a year in the 1990s, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

In the past, such a move could’ve had a much bigger impact on the stock price, even though a split doesn’t fundamentally change anything about a company or its valuation. As WSJ’s Jason Zweig previously wrote, Xerox shares jumped 10% on Jan. 25, 1999, when the company said it would split two-for-one. The next day, eBay went one better with a 3-for-1 announcement that sent its stock up 37.4%.

But the muted market response to Google doubling its shares outstanding suggests investors these days appear to be acting more rationally than they did in the 1990s.

Google originally announced the split in April 2012 as a way for the founders to preserve control over the company. “We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands,” Mr. Page wrote in a letter to shareholders two years ago, explaining the stock-split proposal.

He said that routine, stock-based compensation given to employees as well as stock-based acquisitions “will likely undermine” Google’s current ownership system. “So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world,” the letter said.

Mr. Page acknowledged that some investors—particularly those who have opposed its dual-class voting structure—won’t support the change. But he said Google’s board, which spent more than a year considering the move, decided the structure is in the best interest of the company and shareholders.

This copy is for your personal, non-commercial use only. Distribution and use of
this material are governed by our
Subscriber Agreement
and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones
Reprints at 1-800-843-0008 or visit